Understanding Liquidated Damages in a California Purchase Agreement for Mid-Peninsula Home Buyers & Sellers

Understanding Liquidated Damages for Mid-Peninsula Home Buyers & Sellers

When working with top San Carlos real estate agents, understanding liquidated damages in Mid-Peninsula real estate transactions is essential for home buyers navigating the California Residential Purchase Agreement. This ever-evolving document serves as the central mechanism for purchasing residential real estate in California and includes an important clause called liquidated damages that both buyers and sellers should understand before signing. The California Residential Purchase Agreement details the terms of your offer and becomes the basis for escrow instructions when you purchase a home in Mid-Peninsula communities like San Carlos, Belmont, or Redwood City.

When you write an offer on a Mid-Peninsula home for sale, you will have many documents to sign as part of the real estate purchase process. Many of them are boiler-plate and rather straightforward, addressing issues that have resulted in past litigation. The 16-page Residential Purchase Agreement has its fair share of legalese, but it also contains many important clauses that a buyer should understand prior to signing. Because of its importance, the best Mid-Peninsula Realtors will walk you through this document in detail to ensure you understand each provision.

What Are Liquidated Damages in Real Estate?

According to the California Association of Realtors, "A liquidated damages provision is an agreement in advance that in the event the buyer breaches contract, the buyer will owe a specified amount of money." The liquidated damages section of the Residential Purchase Agreement (see image below) can be a bit confusing for Mid-Peninsula home buyers, yet your real estate agent is not the right person to advise you about whether you should initial it or not, because they are not legal experts. Experienced Mid-Peninsula Realtors should explain it and provide you with as much outside information as needed to ensure you understand the clause before making your decision.

Liquidated damages clause in California Residential Purchase Agreement for Mid-Peninsula real estate transactions

How Much Are Liquidated Damages in California?

According to the Residential Purchase Agreement, "If Buyer fails to complete this purchase because of Buyer's default, Seller shall retain, as liquidated damages, the deposit actually paid." It also states that, "The amount retained shall be no more than 3% of the purchase price." So, the maximum amount a seller would receive if a buyer pulled out of a contract after all contingencies are removed would be $30,000 on a $1,000,000 purchase in San Carlos, Belmont, or other Mid-Peninsula markets. If the buyer only put in $10,000 as a deposit, then the seller would only receive $10,000 in damages.

Benefits of Initialing the Liquidated Damages Clause

The California Association of Realtors clearly outlines the advantages for both the buyer and seller of initialing the liquidated damages clause in real estate contracts. For both buyer and seller in Mid-Peninsula real estate transactions, the main advantage is certainty. Both parties know in advance the maximum amount of money that the seller would receive and the buyer would give up in the case of breach of contract. With the liquidated damages provision in place, the seller need only show that the buyer was in breach of contract. Without a liquidated damages provision in place, there is no automatic presumption that the seller is entitled to the deposit amount. Without the provision, the seller would be required to go to court and prove damages, which can be complicated and costly for all parties involved.

Important Considerations for Mid-Peninsula Home Buyers

Liquidated damages is a complicated topic for real estate buyers and sellers, and there are many nuances not discussed in the explanation above. Anyone writing an offer on Mid-Peninsula real estate in Redwood City, San Mateo, or surrounding areas should do their own research, and if needed, consult with an attorney. Working with experienced real estate professionals who understand California purchase agreements can help you navigate these important contract provisions with confidence.

Veritas Homes is a boutique residential real estate brokerage servicing home buyers and sellers on the San Francisco Mid-Peninsula. Founded by Val Vandervort, Veritas Homes (Latin for "Truth") is committed to providing outstanding customer service to all and operates with "Truth" at the center of all we do. Through our Change Homes Change Lives program, we support the cause of our client's choice with a portion of each commission. To explore active real estate listings in the Mid-Peninsula or learn more about our services, contact us today. To learn more about the San Mateo Real Estate Market, read "Is the Mid Peninsula Real Estate Market Bouncing Back?". To learn about a great waterfront home for sale in San Mateo, read "Resort Style Living on the San Mateo Lagoon." To read about great opportunities for first time home buyers in San Mateo, read "First Time Homes Buyers: The Village San Mateo vs Sunnybrae San Mateo."